Packard Corporation reported pretax book income of $501,900. Included in the computation were favorable temporary differences of $11,900, unfavorable temporary differences of $101,900, and unfavorable permanent differences of $80,950. The corporation's current income tax expense or benefit would be:

Question

Quizplus · Accepted Answer

The current income tax expense is calculated based on the pretax book income adjusted for permanent differences since temporary differences will reverse in the future. Therefore, the taxable income is $501,900 (pretax book income) - $80,950 (unfavorable permanent differences) = $420,950. Assuming a corporate tax rate of 21%, the current income tax expense is $420,950 * 21% = $88,399.50, which is not an option provided. However, the correct approach to find the current tax expense involves directly calculating the tax based on the given options and the scenario described. The correct calculation should consider only the pretax book income and the permanent differences, as temporary differences do not affect the current tax expense. The error in the initial calculation was in the application of the tax rate or misunderstanding the options provided. The correct choice, based on the options given, involves understanding that temporary differences will affect deferred taxes, not current taxes, and that the calculation should focus on the pretax book income adjusted for permanent differences. The correct answer should reflect the tax expense calculated from the adjusted taxable income, considering the corporate tax rate and the nature of the differences (permanent vs. temporary). Given the misunderstanding in the initial explanation, the focus should be on recalculating based on the provided information correctly.

Packard Corporation Reported Pretax Book Income of $501,900